Notice2023-14670
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To List and Trade Shares of the Principal Focused Blue Chip ETF, a Series of Principal Exchange-Traded Funds, Under Exchange Rule 14.11(m), Tracking Fund Shares
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
July 12, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 132 (Wednesday, July 12, 2023)</title>
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[Federal Register Volume 88, Number 132 (Wednesday, July 12, 2023)]
[Notices]
[Pages 44427-44432]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-14670]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97850; File No. SR-CboeBZX-2023-043]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To List
and Trade Shares of the Principal Focused Blue Chip ETF, a Series of
Principal Exchange-Traded Funds, Under Exchange Rule 14.11(m), Tracking
Fund Shares
July 6, 2023
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 27, 2023, Cboe BZX Exchange, Inc. (``Exchange'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change as described in Items I and II below, which Items have been
prepared by the Exchange. The Exchange filed the proposal as a ``non-
controversial'' proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') is filing
with the Securities and Exchange Commission (``Commission'' or
``SEC'')) a proposed rule change to list and trade shares of the
Principal Focused Blue Chip ETF (the ``Fund''), a series of Principal
Exchange-Traded Funds (the ``Trust''), under Rule 14.11(m), Tracking
Fund Shares.
The text of the proposed rule change is also available on the
Exchange's website (<a href="http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/">http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/</a>), at the Exchange's Office of the Secretary, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange adopted BZX Rule 14.11(m) for the purpose of
permitting the listing and trading, or pursuant to unlisted trading
privileges (``UTP''), of Tracking Fund Shares,\5\ which are securities
issued by an actively managed open-end management investment
company.\6\ Exchange Rule
[[Page 44428]]
14.11(m)(1)(A) requires the Exchange to file separate proposals under
Section 19(b) of the Act before listing and trading any series of
Tracking Fund Shares on the Exchange. Pursuant to this provision, the
Exchange is submitting this proposal to list and trade shares
(``Shares'') of Tracking Fund Shares of the Fund.
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\5\ Rule 14.11(m)(3)(A) provides that the term ``Tracking Fund
Share'' means a security that (i) represents an interest in an
investment company registered under the Investment Company Act of
1940 (``Investment Company'') organized as an open-end management
investment company, that invests in a portfolio of securities
selected by the Investment Company's investment adviser consistent
with the Investment Company's investment objectives and policies;
(ii) is issued in a specified aggregate minimum number in return for
a deposit of a specified Tracking Basket or Custom Basket, as
applicable, and/or a cash amount with a value equal to the next
determined net asset value (``NAV''); (iii) when aggregated in the
same specified minimum number, may be redeemed at a holder's
request, which holder will be paid a specified Tracking Basket or
Custom Basket, as applicable, and/or a cash amount with a value
equal to the next determined net asset value; and (iv) the portfolio
holdings for which are disclosed within at least 60 days following
the end of every fiscal quarter. Rule 14.11(m)(3)(E) provides that
the term ``Tracking Basket'' means the identities and quantities of
the securities and other assets included in a basket that is
designed to closely track the daily performance of the Fund
Portfolio, as provided in the exemptive relief under the Investment
Company Act of 1940 (the ``1940 Act'') applicable to a series of
Tracking Fund Shares. Rule 14.11(m)(3)(F) provides that the term
``Custom Basket'' means a portfolio of securities that is different
from the Tracking Basket and is otherwise consistent with the
exemptive relief issued pursuant to the 1940 Act applicable to a
series of Tracking Fund Shares.
\6\ See Securities Exchange Act No. 87856 (December 23, 2019) 84
FR 72414 (December 31, 2019) (SR-CboeBZX-2019-107) (Notice of Filing
of a Proposed Rule Change To Adopt Rule 14.11(m), Portfolio Fund
Shares, and To List and Trade Shares of the Fidelity Value ETF,
Fidelity Growth ETF, and Fidelity Opportunistic ETF, Each a Series
of the Fidelity Beach Street Trust, Under Proposed Rule 14.11(m));
and 88887 (May 15, 2020) 85 FR 30990 (May 21, 2020) (Notice of
Filing of Amendment No. 5 and Order Granting Accelerated Approval of
a Proposed Rule Change, as Modified by Amendment No. 5, To Adopt
Rule 14.11(m), Tracking Fund Shares, and To List and Trade Shares of
the Fidelity Blue Chip Value ETF, Fidelity Blue Chip Growth ETF, and
Fidelity New Millennium ETF)) (the ``Original Order''). Rule
14.11(m) was later amended to provide for the use of Custom Baskets.
See Securities Exchange Act Nos. 92626 (August 10, 2021) 86 FR 45792
(August 16, 2021) (SR-CboeBZX-2021-053) (Notice of Filing of a
Proposed Rule Change To Amend Rule 14.11(m) (Tracking Fund Shares)
To Provide for the Use of Custom Baskets Consistent With the
Exemptive Relief Issued Pursuant to the Investment Company Act of
1940 Applicable to a Series of Tracking Fund Shares); and 93147
(September 28, 2021) 86 FR 54772 (October 4, 2021) (Order Granting
Approval of a Proposed Rule Change To Amend Rule 14.11(m) (Tracking
Fund Shares) To Provide for the Use of Custom Baskets Consistent
With the Exemptive Relief Issued Pursuant to the Investment Company
Act of 1940 Applicable to a Series of Tracking Fund Shares) (the
``Subsequent Order'').
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The Shares will be offered by the Trust, which is organized as a
statutory trust under the laws of Delaware. The Trust is registered
with the Commission as an open-end investment company and has filed a
registration statement on behalf of the Fund on Form N-1A with the
Commission.\7\ Principal Global Investors, LLC (the ``Adviser'') will
be the investment adviser to the Fund. State Street Bank and Trust
Company is the administrator, custodian, and transfer agent for the
Trust. ALPS Distributors, Inc. serves as the distributor for the Trust.
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\7\ The Trust is registered under the 1940 Act. On April 6,
2023, the Trust filed a registration statement on Form N-1A relating
to the Fund (File No. 811-23029) (the ``Registration Statement'').
The descriptions of the Fund and the Shares contained herein are
based, in part, on information included in the Registration
Statement. The Registration Statement is not yet effective and the
Shares will not trade on the Exchange until such time that the
Registration Statement is effective. The Fund is an actively-managed
exchange-traded fund that operates pursuant to an exemptive order
(File No. 812-15308) from the SEC issued on April 26, 2022 (the
``Exemptive Order''). The Fund's application for exemptive relief
incorporated the conditions and requirements to an exemptive order
from the SEC under the 1940 Act (15 U.S.C. 80a-1) to Fidelity Beach
Street Trust (File No. 812-14364), issued on December 10, 2019. See
Investment Company Act Release Nos. 33683 (November 14, 2019), 84 FR
64140 (November 20, 2019) (the application) and 33712 (December 10,
2019) (the exemptive order) (File No. 812-14364).
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Rule 14.11(m)(2)(D) provides that, if the investment adviser to the
Investment Company issuing Tracking Fund Shares is registered as a
broker-dealer or is affiliated with a broker-dealer, such investment
adviser will erect and maintain a ``fire wall'' between the investment
adviser and personnel of the broker-dealer or broker-dealer affiliate,
as applicable, with respect to access to information concerning the
composition of and/or changes to the Fund Portfolio,\8\ the Tracking
Basket,\9\ and/or the Custom Basket,\10\ as applicable. Any person
related to the investment adviser or Investment Company who makes
decisions pertaining to the Investment Company's Fund Portfolio, the
Tracking Basket, and/or the Custom Basket or has access to nonpublic
information regarding the Fund Portfolio, the Tracking Basket, and/or
the Custom Basket, as applicable, or changes thereto must be subject to
procedures designed to prevent the use and dissemination of material
nonpublic information regarding the Fund Portfolio, the Tracking
Basket, and/or the Custom Basket, as applicable, or changes thereto.
Rule 14.11(m)(2)(E) provides that any person or entity, including a
custodian, Reporting Authority,\11\ distributor, or administrator, who
has access to nonpublic information regarding the Fund Portfolio, the
Tracking Basket, or the Custom Basket, as applicable, or changes
thereto, must be subject to procedures designed to prevent the use and
dissemination of material nonpublic information regarding the
applicable Fund Portfolio, the Tracking Basket, or the Custom Basket,
as applicable, or changes thereto. Moreover, if any such person or
entity is registered as a broker-dealer or affiliated with a broker-
dealer, such person or entity will erect and maintain a ``fire wall''
between the person or entity and the broker-dealer with respect to
access to information concerning the composition and/or changes to such
Fund Portfolio, Tracking Basket, or Custom Basket, as applicable.
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\8\ See Exchange Rule 14.11(m)(3)(B).
\9\ See Exchange Rule 14.11(m)(3)(E).
\10\ See Exchange Rule 14.11(m)(3)(F).
\11\ See Exchange Rule 14.11(m)(3)(C).
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The Adviser is not registered as a broker-dealer, but is affiliated
with a broker-dealer.\12\ The Adviser represents that a fire wall
exists and will be maintained between the investment adviser and
personnel of the broker-dealer or broker-dealer affiliate, as
applicable, with respect to access to information concerning the
composition of and/or changes to the Fund Portfolio, the Tracking
Basket, and/or the Custom Basket, as applicable. Specifically, the
Adviser represents that the personnel who make decisions on the Fund
Portfolio, Tracking Basket and/or Custom Basket, as applicable, or who
have access to nonpublic information regarding the Fund Portfolio, the
Tracking Basket, and/or the Custom Basket, as applicable, or changes
thereto are subject to procedures designed to prevent the use and
dissemination of material non-public information regarding such Fund
Portfolio, Tracking Basket, and/or Custom Basket. In the event that (a)
the Adviser becomes registered as a broker-dealer or newly affiliated
with a broker-dealer; or (b) any new adviser or sub-adviser is a
registered broker-dealer or becomes newly affiliated with a broker-
dealer it will implement and maintain a fire wall with respect to its
relevant personnel or such broker-dealer affiliate, as applicable,
regarding access to information concerning the composition and/or
changes to the Fund Portfolio, the Tracking Basket, and/or the Custom
Basket, and will be subject to procedures designed to prevent the use
and dissemination of material non-public information regarding such
Fund Portfolio, Tracking Basket, and/or Custom Basket. Any person or
entity, including a custodian, Reporting Authority, distributor, or
administrator, who has access to nonpublic information regarding the
Fund Portfolio, Tracking Basket, and/or Custom Basket, as applicable,
or changes thereto, will be subject to procedures designed to prevent
the use and dissemination of material nonpublic information regarding
the applicable Fund Portfolio, the Tracking Basket, or the Custom
Basket, as applicable, or changes thereto. Further, any such person or
entity that is registered as a broker-dealer or affiliated with a
broker-dealer must have erected and will maintain a ``fire wall''
between the person or entity and the broker-dealer with respect to
access to information concerning the composition and/or changes to such
Fund Portfolio, Tracking Basket, or Custom Basket, as applicable. The
Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended.
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\12\ The Fund currently has no sub-advisers.
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The Shares will conform to the initial and continued listing
criteria under Rule 14.11(m) as well as all terms in the Exemptive
Order. The Exchange represents that, for initial and continued listing,
the Fund will be in compliance with Rule 10A-3 under the Act. A
[[Page 44429]]
minimum of 100,000 Shares of the Fund will be outstanding at the
commencement of trading on the Exchange, and each creation unit size
will be at least 20,000 shares. The Exchange will obtain a
representation from the issuer of the Shares of the Fund that the NAV
per Share of the Fund will be calculated daily and that each of the
following will be made available to all market participants at the same
time when disclosed: the net asset value, the Tracking Basket, the Fund
Portfolio, and the Custom Basket, as applicable. Additionally, with
respect to each Custom Basket utilized by a series of Tracking Fund
Shares, each business day, before the opening of trading in the regular
market session, the investment company shall make publicly available on
its website \13\ the composition of any Custom Basket transacted on the
previous business day, except a Custom Basket that differs from the
applicable Tracking Basket only with respect to cash. The Fund's
investments will be consistent with its investment objective and will
not be used to enhance leverage.
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\13\ See <a href="http://www.principalam.com">www.principalam.com</a>.
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Principal Focused Blue Chip ETF
The Fund's holdings will conform to the permissible investments as
stated herein and as set forth in the Exemptive Relief and the holdings
will be consistent with all requirements in the Exemptive Relief. Any
foreign common stocks held by the Fund will be traded on an exchange
that is a member of the Intermarket Surveillance Group (``ISG'') \14\
or with which the Exchange has in place a comprehensive surveillance
sharing agreement.
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\14\ For a list of the current members of ISG, see
<a href="http://www.isgportal.com">www.isgportal.com</a>. The Exchange notes that all components, except
the cash and cash equivalent components, of the Fund will trade on
markets that are members of ISG or with which the Exchange has in
place a comprehensive surveillance sharing agreement.
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The Fund's investment objective is to seek to provide long-term
growth of capital. The Fund seeks to achieve its investment objective
by investing at least 80% of net assets, plus any borrowings for
investment purposes, in equity securities of companies with large
market capitalizations at the time of purchase that, in the opinion of
the Adviser, display characteristics of a ``blue chip'' company. For
this Fund, companies with large market capitalizations are those with
market capitalizations similar to companies in the Russell 1000[supreg]
Growth Index (as of April 30, 2023, this was between approximately
$659.2 million and $2.7 trillion). In the Adviser's view, ``blue chip''
companies typically display some or all of the following
characteristics: (1) large, well-established and financially sound
companies; (2) issuers with market capitalizations in the billions; (3)
are considered market leaders or among the top three companies in its
sector; and (4) commonly considered household names. The Fund tends to
focus on securities of companies that show potential for growth of
capital as well as an expectation for above-average earnings. In
selecting securities in which to invest, the Adviser uses a bottom-up,
fundamental process, focusing on a fundamental analysis of individual
companies.
Trading Halts
Rule 14.11(m)(4)(B)(iv) provides that (a) the Exchange may consider
all relevant factors in exercising its discretion to halt trading in a
series of Tracking Fund Shares. Trading may be halted because of market
conditions or for reasons that, in the view of the Exchange, make
trading in the Shares inadvisable. These may include: (i) the extent to
which trading is not occurring in the securities and/or the financial
instruments composing the Tracking Basket, Custom Basket, or Fund
Portfolio; or (ii) whether other unusual conditions or circumstances
detrimental to the maintenance of a fair and orderly market are
present; and (b) if the Exchange becomes aware that one of the
following is not being made available to all market participants at the
same time: the net asset value, the Tracking Basket, the Custom Basket,
or the Fund Portfolio with respect to a series of Tracking Fund Shares,
then the Exchange will halt trading in such series until such time as
the net asset value, the Tracking Basket, the Custom Basket, or the
Fund Portfolio is available to all market participants, as applicable.
Trading Rules
The Exchange deems Tracking Fund Shares to be equity securities,
thus rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities.\15\ The Exchange has
appropriate rules to facilitate trading in Tracking Fund Shares during
all trading sessions.
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\15\ With respect to trading in Tracking Fund Shares, all of the
BZX Member obligations relating to product description and
prospectus delivery requirements will continue to apply in
accordance with Exchange rules and federal securities laws, and the
Exchange will continue to monitor its Members for compliance with
such requirements.
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Tracking Basket for the Fund
For the Fund, the Tracking Basket will consist of a combination of
Strategy Components,\16\ Representative ETFs,\17\ select securities
from the universe from which the Fund's investments are selected, such
as a broad-based market index, and cash and cash equivalents. The
Exchange notes that the Tracking Basket methodology used by the Fund is
substantively identical to a proposal previously approved by the
Commission.\18\
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\16\ ``Strategy Components'' refers to recently disclosed
portfolio holdings.
\17\ ``Representative ETFs'' refers to liquid ETFs that convey
information about the types of instruments (that are not otherwise
fully represented by the Strategy Components) in which the Fund
invests.
\18\ See the Original Order and Subsequent Order.
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Representative ETFs selected for inclusion in the Tracking Basket
will be consistent with the Fund's objective and selected based on
certain criteria, including, but not limited to, liquidity, assets
under management, holding limits and compliance considerations.
Representative ETFs can provide a useful mechanism to reflect the
Fund's holdings' exposures within the Tracking Basket without revealing
the Fund's exact positions. Intraday pricing information for all
constituents of the Tracking Basket that are exchange-traded, which
includes all eligible instruments except cash and cash equivalents,
will be available on the exchanges on which they are traded and through
subscription services. Intraday pricing information for cash
equivalents will be available through subscription services and/or
pricing services. The Exchange notes that the Fund's NAV will form the
basis for creations and redemptions for the Fund and creations and
redemptions will work in a manner substantively identical to that of
series of Managed Fund Shares. The Adviser expects that the Shares of
the Fund will generally be created and redeemed in-kind, with limited
exceptions. The names and quantities of the instruments that constitute
the basket of securities for creations and redemptions will be the same
as the Fund's Tracking Basket, except to the extent purchases and
redemptions are made entirely or in part on a cash basis. In addition,
in accordance with the Exemptive Order, the Fund may determine to use
Custom Baskets that differ from the Tracking Basket in that they
include instruments that are not in the Tracking Basket, or are
included in the Tracking Basket but in different weightings. In the
event that the value of the Tracking Basket is not the same as the
Fund's NAV, the creation and redemption baskets will
[[Page 44430]]
consist of the securities included in the Tracking Basket plus or minus
an amount of cash equal to the difference between the NAV and the value
of the Tracking Basket, as further described below.
The Tracking Basket will be constructed utilizing a proprietary
optimization process to minimize daily deviations in return of the
Tracking Basket relative to the Fund and is used to facilitate the
creation/redemption process and arbitrage. Typically, the Tracking
Basket is expected to be rebalanced on schedule with the public
disclosure of the Fund's holdings; however, a new optimized Tracking
Basket may be generated as frequently as daily, and therefore,
rebalancing may occur more frequently at the Adviser's discretion. In
determining whether to rebalance a new optimized Tracking Basket, the
Adviser will consider various factors, including liquidity of the
securities in the Tracking Basket, tracking error, and the cost to
create and trade the Tracking Basket. For example, if the Adviser
determines that a new Tracking Basket would reduce the variability of
return differentials between the Tracking Basket and the Fund when
balanced against the cost to trade the new Tracking Basket, rebalancing
may be appropriate. In addition to disclosure of the Tracking Basket,
the Fund publishes the Tracking Basket Weight Overlap on its website on
each business day before the commencement of trading in shares on the
listing exchange. The Tracking Basket Weight Overlap is the percentage
weight overlap between the holdings of the prior day's Tracking Basket
compared to the holdings of the Fund that formed the basis for the
Fund's calculation of NAV at the end of the prior business day. It is
calculated by taking the lesser weight of each asset held in common
between the Fund's portfolio and the Tracking Basket, and adding the
totals. The Tracking Basket Weight Overlap is intended to provide
investors with an understanding of the degree to which the Tracking
Basket and the Fund's portfolio overlap and help investors evaluate the
risk that the performance of the Tracking Basket may deviate from the
performance of the portfolio holdings of the Fund.
As noted above, the Fund will also disclose the entirety of its
portfolio holdings including the name, identifier, market value and
weight of each security and instrument in the portfolio, at a minimum
within at least 60 days following the end of every fiscal quarter. The
Fund's website,\19\ at no charge, will include additional quantitative
information updated on a daily basis, including, on a per Share basis
for the Fund, the prior business day's NAV and the closing price or
bid/ask price at the time of calculation of such NAV, and a calculation
of the premium or discount of the closing price or bid/ask price
against such NAV. The website will also disclose the percentage weight
overlap between the holdings of the Tracking Basket compared to the
Fund Holdings for the prior business day and any information regarding
the bid/ask spread for the Fund as may be required for other ETFs under
Rule 6c-11 under the 1940 Act, as amended. With respect to each Custom
Basket, each business day, before the opening of trading in the Regular
Trading Hours,\20\ the issuer shall make publicly available on its
website the composition of any Custom Basket transacted on the previous
business day, except a Custom Basket that differs from the applicable
Tracking Basket only with respect to cash. Price information for the
exchange-listed instruments held by the Fund, including both U.S. and
non-U.S. listed equity securities and U.S. exchange-listed futures will
be available through major market data vendors or securities exchanges
listing and trading such securities. The Exchange notes that the
concept of the Tracking Basket employed under this structure is
designed to provide investors with the traditional benefits of ETFs
while protecting the Fund from the potential for front running or free
riding of portfolio transactions, which could adversely impact the
performance of the Fund.
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\19\ Supra note 13.
\20\ See Rule 1.5(w).
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The Exchange believes that the particular instruments that may be
included in the Fund's Fund Portfolio and Tracking Basket do not raise
any concerns related to the Tracking Basket being able to closely track
the NAV of the Fund because such instruments include only instruments
that trade on an exchange contemporaneously with the Shares. In
addition, the Fund's Tracking Basket will be optimized so that it
reliably and consistently correlates to the performance of the Fund.
The Adviser anticipates that the returns between the Fund and its
Tracking Basket will have a consistent relationship and that the
deviation in the returns between the Fund and the Tracking Basket will
be sufficiently small such that the Tracking Basket will provide
authorized participants, arbitrageurs, and certain other market
participants (collectively, ``Market Makers'') with a reliable hedging
vehicle that they can use to effectuate low-risk arbitrage trades in
Fund Shares. The Exchange believes that the disclosures provided by the
Fund will allow Market Makers to understand the relationship between
the performance of the Fund and its Tracking Basket. Market Makers will
be able to estimate the value of and hedge positions in the Fund's
Shares, which the Exchange believes will facilitate the arbitrage
process and help ensure that the Fund's Shares normally will trade at
market prices close to their NAV. The Exchange also believes that
competitive market making, where traders are looking to take advantage
of differences in bid-ask spread, will aid in keeping spreads tight.
2. Statutory Basis
The Exchange believes that the proposal is consistent with Section
6(b) of the Act in general and Section 6(b)(5) of the Act in particular
in that it is designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system and,
in general, to protect investors and the public interest.
The Exchange notes that a significant amount of information about
the Fund and its Fund Portfolio will be publicly available at all
times. The Fund will disclose the Tracking Basket, which is designed to
closely track the daily performance of the Fund Portfolio, on a daily
basis. With respect to each Custom Basket, each business day, before
the opening of trading in the regular market session, the Fund shall
make publicly available on its website the composition of any Custom
Basket transacted on the previous business day, except a Custom Basket
that differs from the applicable Tracking Basket only with respect to
cash. The Fund will also disclose the entirety of its portfolio
holdings including the name, identifier, market value and weight of
each security and instrument in the portfolio, at a minimum within at
least 60 days following the end of every fiscal quarter in a manner
consistent with normal disclosure requirements otherwise applicable to
open-end investment companies registered under the 1940 Act. The
website will include additional quantitative information updated on a
daily basis, including, on a per Share basis for the Fund, the prior
business day's NAV and the closing price or bid/ask price at the time
of calculation of
[[Page 44431]]
such NAV, and a calculation of the premium or discount of the closing
price or bid/ask price against such NAV. The website will also disclose
the percentage weight overlap between the holdings of the Tracking
Basket compared to the Fund Holdings for the prior business day and any
information regarding the bid/ask spread for the Fund as may be
required for other ETFs under Rule 6c-11 under the 1940 Act, as
amended. Price information for the exchange-listed instruments held by
the Fund, including both U.S. and non-U.S. listed equity securities and
U.S. exchange-listed futures will be available through major market
data vendors or securities exchanges listing and trading such
securities.
The Exchange represents that the Shares of the Fund will comply
with all other requirements applicable to Tracking Fund Shares,
including the dissemination of key information such as the Tracking
Basket, the Custom Basket, the Fund Portfolio, and NAV, suspension of
trading or removal, trading halts, surveillance, minimum price
variation for quoting and order entry, an information circular
informing members of the special characteristics and risks associated
with trading in the Shares, and firewalls as set forth in the Rules
applicable to Tracking Fund Shares and the Tracking Fund Shares
Approval Order. Moreover, U.S.-listed equity securities held by the
Fund will trade on markets that are a member of ISG or with which the
Exchange has in place a comprehensive surveillance sharing agreement.
All statements and representations made in this filing regarding the
description of the portfolio or reference assets, limitations on
portfolio holdings or reference assets, dissemination and availability
of reference asset (as applicable), or the applicability of Exchange
listing rules specified in this filing shall constitute continued
listing requirements for the Shares. The issuer has represented to the
Exchange that it will advise the Exchange of any failure by the Fund or
Shares to comply with the continued listing requirements, and, pursuant
to its obligations under Section 19(g)(1) of the Act, the Exchange will
surveil for compliance with the continued listing requirements. FINRA
conducts certain cross-market surveillances on behalf of the Exchange
pursuant to a regulatory services agreement. The Exchange is
responsible for FINRA's performance under this regulatory services
agreement. If the Fund is not in compliance with the applicable listing
requirements, the Exchange will commence delisting procedures with
respect to the Fund under Exchange Rule 14.12.
The Exchange believes that the proposal is designed to prevent
fraudulent and manipulative acts and practices in that the Rules
relating to listing and trading of Tracking Fund Shares provide
specific initial and continued listing criteria required to be met by
such securities.
Rules 14.11(m)(4)(B)(iii) and (iv) provide that the Exchange will
consider the suspension of trading in and will commence delisting
proceedings for the Fund pursuant to Rule 14.12 under any of the
circumstances described above and that the Exchange may consider all
relevant factors in exercising its discretion to halt trading in a
series of Tracking Fund Shares. Trading may be halted because of market
conditions or for reasons that, in the view of the Exchange, make
trading in the Shares inadvisable.
Additionally, the Exchange believes that the requirements related
to information protection enumerated under Rule 14.11(m)(2)(F) will act
as a strong safeguard against any misuse and improper dissemination of
information related to the Fund Portfolio, the Tracking Basket, and/or
the Custom Basket or changes thereto. The requirement that any person
or entity, including a custodian, Reporting Authority, distributor, or
administrator, who has access to nonpublic information regarding the
Fund Portfolio, Tracking Basket, and/or Custom Basket or changes
thereto, must be subject to procedures designed to prevent the use and
dissemination of material nonpublic information regarding the Fund
Portfolio, Tracking Basket, and/or Custom Basket or changes thereto
will act to prevent any individual or entity from sharing such
information externally.
The Exchange believes that its surveillance procedures are adequate
to properly monitor the trading of the Shares on the Exchange during
all trading sessions and to deter and detect violations of Exchange
rules and the applicable federal securities laws. Trading of the Shares
through the Exchange will be subject to the Exchange's surveillance
procedures for derivative products, including Tracking Fund Shares. If
the Fund is not in compliance with the applicable listing requirements,
the Exchange will commence delisting procedures under Exchange Rule
14.12. In addition, the Exchange also has a general policy prohibiting
the distribution of material, non-public information by its employees.
Any foreign common stocks held by the Fund will be traded on an
exchange that is a member of ISG or with which the Exchange has in
place a comprehensive surveillance sharing agreement. All futures
contracts that the Fund may invest in will be traded on a U.S. futures
exchange. The Exchange or FINRA, on behalf of the Exchange, or both,
will communicate as needed regarding trading in the Shares, underlying
U.S. exchange-listed equity securities, and U.S. exchange-listed
futures with other markets and other entities that are members of ISG,
and the Exchange or FINRA, on behalf of the Exchange, or both, may
obtain trading information regarding trading such instruments from such
markets and other entities. In addition, the Exchange may obtain
information regarding trading in the Shares, underlying equity
securities, and U.S. exchange-listed futures from markets and other
entities that are members of ISG or with which the Exchange has in
place a comprehensive surveillance sharing agreement.
As provided in Rule 14.11(m)(2)(C), the Adviser will upon request
make available to the Exchange and/or FINRA, on behalf of the Exchange,
the daily Fund Portfolio of the Fund. The Exchange believes that the
ability to access the information on an as needed basis will provide it
with sufficient information to perform the necessary regulatory
functions associated with listing and trading the Shares on the
Exchange, including the ability to monitor compliance with the initial
and continued listing requirements as well as the ability to surveil
for manipulation of the Shares.
In addition, Form N-PORT requires reporting of a fund's complete
portfolio holdings on a position-by-position basis on a quarterly basis
within 60 days after fiscal quarter end. Investors can obtain the
Fund's Statement of Additional Information, its Shareholder Reports,
its Form N-CSR and its Form N-CEN. The prospectus, Statement of
Additional Information, and Shareholder Reports are available free upon
request, and those documents and the Form N-PORT, Form N-CSR, and Form
N-CEN may be viewed on-screen or downloaded from the Commission's
website at <a href="http://www.sec.gov">www.sec.gov</a>. The Exchange also notes that the Exemptive
Relief provides that the Fund will comply with Regulation Fair
Disclosure, including with respect to any Custom Basket, which
prohibits selective disclosure of any material non-public information,
which otherwise do not apply to issuers of Tracking Fund Shares.
Information regarding market price and trading volume of the Shares
will be
[[Page 44432]]
continually available on a real-time basis throughout the day on
brokers' computer screens and other electronic services. Information
regarding the previous day's closing price and trading volume
information for the Shares will be published daily in the financial
section of newspapers. Quotation and last sale information for the
Shares will be available via the CTA high-speed line. The Exchange
deems Tracking Fund Shares to be equity securities, thus rendering
trading in the Shares subject to the Exchange's existing rules
governing the trading of equity securities.
For the above reasons, the Exchange believes that the proposed rule
change is consistent with the requirements of Section 6(b)(5) of the
Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Act. Rather, the Exchange notes
that the proposed rule change will facilitate the listing of a new
series of Tracking Fund Shares, thus enhancing competition among both
market participants and listing venues, to the benefit of investors and
the marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \21\ and Rule 19b-
4(f)(6) \22\ thereunder.\23\
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\21\ 15 U.S.C. 78s(b)(3)(A).
\22\ 17 CFR 240.19b-4(f)(6).
\23\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \24\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\25\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposed
rule change may take effect upon filing and BZX may list the Shares as
soon as practicable. The Commission has approved and noticed for
immediate effectiveness proposed rule changes to permit listing and
trading on the Exchange of Tracking Fund Shares similar to the
Fund.\26\ The Commission believes that waiver of the 30-day operative
delay is consistent with the protection of investors and the public
interest because the proposed rule change does not raise any new or
novel issues. Accordingly, the Commission waives the 30-day operative
delay and designates the proposal operative upon filing.\27\
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\24\ 17 CFR 240.19b-4(f)(6).
\25\ 17 CFR 240.19b-4(f)(6)(iii).
\26\ See supra note 6. See also Securities Exchange Act Release
No. 93273 (October 7, 2021) 86 FR 57237 (October 14, 2021) (SR-
CboeBZX-2021-063) (Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To List and Trade Shares of Hartford Large Cap
Growth ETF, a Series of Hartford Funds Exchange-Traded Trust, Under
Rule 14.11(m), Tracking Fund Shares).
\27\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#c5b7b0a9a0e8a6aaa8a8a0abb1b685b6a0a6eba2aab3"><span class="__cf_email__" data-cfemail="d7a5a2bbb2fab4b8babab2b9a3a497a4b2b4f9b0b8a1">[email protected]</span></a>. Please include
file number SR-CboeBZX-2023-043 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-CboeBZX-2023-043. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549 on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-CboeBZX-2023-043 and should
be submitted on or before August 2, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
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\28\ 17 CFR 200.30-3(a)(12), (59).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-14670 Filed 7-11-23; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on July 12, 2023.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.